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Filed 2022 Taxes and am over the ROTH Income Limit
Posted on 4/12/23 at 10:17 am
Posted on 4/12/23 at 10:17 am
I have had a self managed Roth IRA through Vangaurd that I have consistently contributed to monthly. We just did our taxes for 2022 and I realized that our MAGI is over the limit for contributions.
From my understanding that means that all of my 2022 contributions were ineligible and need to be withdrawn, correct? It also reads like I need to withdraw the earnings (and at an early withdrawal penalty ). How do I calculate the earnings on those specific shares and the dividends that are associated?
Or am I overthinking this?
From my understanding that means that all of my 2022 contributions were ineligible and need to be withdrawn, correct? It also reads like I need to withdraw the earnings (and at an early withdrawal penalty ). How do I calculate the earnings on those specific shares and the dividends that are associated?
Or am I overthinking this?
Posted on 4/12/23 at 10:25 am to Drunken Crawfish
I don't think over investment qualifies as early withdrawal. I know we have had to pull out before and don't remember there being a penalty. The gains in my roth are paid out quarterly, semi, and year end. Shouldn't be too hard to tabulate how your added shares added distributions.
Posted on 4/12/23 at 10:47 am to Drunken Crawfish
You will need to withdraw the contributions and all earnings associated with them otherwise will pay a 6% penalty yoy. You can recharacterize the contributions from roth to traditional but I would encourage you to talk this through with a tax professional.
This post was edited on 4/12/23 at 10:48 am
Posted on 4/12/23 at 11:09 am to Drunken Crawfish
Well, enjoy jail.
So you have an option.
1) Before April 15, pull out the contribution and associated earnings, and pay incone tax on the earnings (plus 10% penalty on the earnings if you are under 59.5)
2) Wait until after April 15th, and pull out only the contribution, but you can leave the earnings in. Instead, you pay a 6% penalty on the contribution you removed. But note, tha 6% penalty repeats each year. So, keep that in mind.
So you need to run the numbers both ways and see what works best for you.
For the first option, there is a forumla on this website that you use to determine the excess contribition earnings.
LINK
So you have an option.
1) Before April 15, pull out the contribution and associated earnings, and pay incone tax on the earnings (plus 10% penalty on the earnings if you are under 59.5)
2) Wait until after April 15th, and pull out only the contribution, but you can leave the earnings in. Instead, you pay a 6% penalty on the contribution you removed. But note, tha 6% penalty repeats each year. So, keep that in mind.
So you need to run the numbers both ways and see what works best for you.
For the first option, there is a forumla on this website that you use to determine the excess contribition earnings.
LINK
Posted on 4/12/23 at 12:57 pm to Drunken Crawfish
One thing you can do if you want---roll any traditional IRA into the Roth. You will pay taxes on it but once it is in the Roth it will grow tax free which you know. The good thing is there are no forced distributions from Roth and I think of mine as an estate tool.
I contribute to my traditional IRA since income limits do not apply and then ever year or two I simply roll that money into my Roth.
I contribute to my traditional IRA since income limits do not apply and then ever year or two I simply roll that money into my Roth.
Posted on 4/12/23 at 12:58 pm to Drunken Crawfish
Just do a backdoor Roth if you think you'll be anywhere close to the income limit.
Posted on 4/13/23 at 3:31 pm to Drunken Crawfish
This happened to me the first year we found ourselves over the limit. I always dumped the full year amount into the Roth in January. A couple things happened and by July I realized we were over the limit. I contacted both etrade and american century and told them the problem. They basically counted all the funds plus, interest, and increase in price and returned the money. It was very easy they deal with this all the time. Filed my taxes as normal and never heard anything about it since.
Posted on 4/13/23 at 4:15 pm to Drunken Crawfish
I wish I was rich enough for a Roth ira
Posted on 4/14/23 at 7:12 am to Drunken Crawfish
Welcome to the back door club. The misses will thank you later.
Posted on 4/16/23 at 10:00 am to Drunken Crawfish
Ain’t it great how one can make an honest mistake, and the IRS then accuses you of trying to cheat and forced a penalty practically at gunpoint?
Yet they aren’t held to the same standard. Not even close.
Yet they aren’t held to the same standard. Not even close.
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